knowledge, because different companies use different lists of conditions as a basis for their cover. An adviser would be able to tell you if the reason one company might be offering cheaper cover is that it has a relatively narrow list of illnesses on which it pays out. Income protection is another area where an adviser’s knowledge can help. This is a useful insurance, especially for the self-employed, providing financial cover if you’re unable to earn because of injury, sickness or (if you’re employed) redundancy. There are rules, though, which limit how much cover you can have based on your income. Without knowing what these are you risk paying for a policy that doesn’t pay out when you need it to. It’s not just about choosing the best value insurers. You may also benefit from an adviser pulling together just the right combination of insurances to meet your particular needs. Tip Always ask whether your adviser is choosing from the whole of the market or if they are contractually obliged to use certain ones. The need to invest for your future Beyond protection for you and your family, for many people the next priority is investing for their future, and in particular for their retirement. The state pension provides a relatively modest income of £155.65 a week for anyone reaching state pension age now (if you qualify for the full payment). But if you’re not already very close to state pension age, relying on it to be there by the time you retire is probably unwise. The state pension age is gradually being pushed back by successive governments. People are also living longer and this is placing a financial burden on the state that future governments may need to address. We just can’t be sure what the future holds. Some people are still lucky enough to have company defined benefit (final salary) pensions. These have historically paid out reasonable pension incomes to those who have accrued longer periods of service with their employer. An example is the NHS pension scheme. Final salary pensions are becoming increasingly rare amongst private employers though, and even if you have one you may still not achieve the income you would like in retirement. Outside these two types of pension, the onus is entirely on you as an individual to save and invest enough money for your income in retirement. Without a thorough understanding of when you want to retire, the life you want to live in retirement and the income you’ll need to fund it, it’s impossible to know what action you need to take to achieve your goals. So this is another area in which you can benefit from the support of an adviser. Even once you reach retirement, you still need to make wise decisions with your money. The options open to you for taking retirement income range from the simplicity but reduced flexibility and expense of buying an annuity, to staying invested and taking income as and when you need it, with the ongoing investment risk associated with this. Tip For more information about taking an income in retirement, ask to see our ‘Options in Retirement’ booklet which summarises these.
Understanding investment Someone could approach you and ask you to invest all of your savings in their new business venture. Most people would be uncomfortable with this. It’s difficult to make an assessment of whether a new business will be successful with no track record and you would be putting all your eggs in one basket. It could make you very rich, but there’s also a very good chance you will lose all of your money. And what if you wanted to sell your investment? If you invest in an established, publicly listed company a lot more information is available. You can examine its financial track record and – compared to a private company - it is far easier to sell the shares when you want to. Even better, by investing in multiple publicly listed companies you are less reliant on the performance of just one business. Your investments are diversified. And you can diversify still more by spreading your investments across different types of industries and countries, reducing the risks you might be exposed to if there are problems in a particular geographical or business sector. Establishing how much risk you are prepared to take with your money, and understanding what risk really means to you, is critical to the investment decisions you make. Some of the risks we’ve already touched on are: Capital risk. Losing your capital (the amount you originally invested) Liquidity risk. Not being able to find a buyer when you want to sell Volatility risk. Share prices going up and down based on performance and other factors Concentration risk. Concentrating your investments in a single market And there are many others which might be relevant at different times of your life. An adviser – perhaps working with other investment professionals - can help you to make sure your investment portfolio is set at an appropriate level of risk for your particular circumstances. That includes diversifying where your money is invested, so that a downturn in one particular market does not necessarily mean a downturn in all of your investments. They will agree a solution for you that strikes the right balance between your financial needs and objectives, and the amount of risk you are prepared to take in achieving them. Sometimes that means you’ll need to compromise, and an adviser will be able to identify where that is the case and build it in to your plan. For example, you might need to take more risk, invest more money, or continue working a little longer to achieve your objectives. Equally, you might find you can take less investment risk than you’d first thought. With so much information available online you might wonder if you can manage your own investments. If you are experienced, knowledgeable and confident that might work for you. But there are also some good reasons it might not be wise. We’ll come back to these later. Tip A good adviser will act as a coach to help you meet your goals, managing you and your investments through more turbulent times and advising you against making rash decisions.